Nervy wait over bonds: Personal Finance

THOUSANDS of people with billions of pounds invested in single-premium life bonds could be faced with an unexpected bill for capital gains tax when they cash in their policies - and all because a life insurer is trying to persuade the High Court to shut a loophole that allowed one investor to turn a pounds 50,000 investment into more than pounds 1m in six years.

Gary Tait, the investor, was able take advantage of a clause in his policy, originally with Tyndall, that enabled him to sell investments at the previous day's price - he simply could not lose on the stock market.

The court was told that if he had been allowed to continue in this fashion, he would have been a multi-trillionaire by the time his policy matured. Not surprisingly, the company that now owns Tyndall is trying to prevent this by claiming that the contract is void, because it is not a life contract but an investment contract. The initial judgment favoured this view.

Unfortunately, the legal hocus-pocus has accidental implications for thousands of other people with single-premium bonds, as the change of status from 'life insurance' to 'investment' could make these bonds liable to capital gains tax.

The companies offering the products are telling investors not to do anything rash, as they point out that the judgment is not final. The worst thing they could do would be to surrender their products unnecessarily. The life insurers are urgently seeking clarification from the Department of Trade and Industry and the Inland Revenue on the matter.

The companies with policies that are most likely to be affected include some of the household names in life insurance - such as Axa Equity & Law, General Accident and Allied Dunbar. All have moved swiftly to alter the terms of their single-premium bonds to escape the effects of the judgment. Those with money already invested will have to wait.

IT IS going to be a long summer for those waiting to find out whether they will be compensated for being mistakenly transferred out of their occupational pension.

The lead City regulator, the Securities and Investments Board, announced last week that it was delaying the paper that would describe exactly how the mess is going to be sorted out by three months until October.

The SIB said that it had to postpone publication of the paper because of the unprecedented complexity of the issues involved.

One possible reason for the delay is that the pensions industry is unlikely to accept a ruling on compensation that will cost it millions of pounds without a struggle.

Meanwhile, for those that have opted out or transferred, the gap between the benefits accruing in their former occupational scheme and their present personal pension continues to grow.

IS IT the beginning of the end for the foot-in-the-door life insurance salesman? The antics of commission-hungry, or perhaps merely hungry, salesmen have played an important part in shaping public perceptions of the industry.

This week, Norwich Union, one of the UK's biggest life insurers, abandoned its policy of paying its salespeople on a commission-only basis and switched them over to being paid on salary.

NU claims that it is changing the fundamental nature of its salesforce because of the new requirement for disclosing commission to the customers.

It fears that when consumers realise exactly how great the incentive is to make a sale, they will not buy. The salaries of the restructured salesforce will also have to be disclosed to the buying public, but in a much more palatable way. Other big financial institutions are poised to follow, or have followed, suit. Barclays Life, recently publicly rebuked by the SIB over training standards, is also shifting its salesforce onto a salary basis.